Sidley’s global Environmental, Social and Governance (ESG) practices are at the forefront of a rapidly shifting landscape in which companies face an unprecedented range of ESG risks and opportunities. These arise across national and international boundaries, and cover ESG claims, communications, disclosures, performance, and due diligence – all the way through companies’ value chains.
Sidley is uniquely placed to support our clients in navigating this challenging landscape. To match our clients’ global needs, our cross-jurisdictional, cross-practice team can fit together the many different and evolving pieces of the ESG puzzle, in a holistic, coherent, and effective way. We provide clients with a “one-stop shop” that offers strategic and technical advice across the full spectrum of national and international ESG issues, anticipating regulatory and litigation trends, and helping our clients to shape best practices.
European ESG practice
The EU’s Green Deal is a sweeping range of legislative proposals aimed at a comprehensive green transformation across all parts of the economy. The measures will affect various sectors along the entire value chain, covering a wide range of goods and services – domestic and imported – sold in the EU.
Sidley’s experience covers the full range of the EU’s Green Deal initiatives, including:
- ESG reporting requirements (Corporate Sustainability Reporting Directive/Non-Financial Reporting Directive): requiring audited disclosures on the impact of corporate activities on the environment and society, including the compatibility of business models with the UNFCCC’s Paris Agreement goals;
- Sustainable Finance Disclosure Regulation (SFDR): sets out transparency requirements for “sustainable” financial products, applicable to banks, investment funds, asset managers, and financial advisers;
- Corporate Sustainability Due Diligence Directive (CS3D): to impose substantive due diligence obligations on companies of a certain size operating in Europe. The obligations will cover companies’ own operations, plus those of their suppliers and, in some cases, their clients/customers;
- ESG litigation risks: an increasing risk for companies, as voluntary ESG claims, marketing statements, and other public communications are scrutinized under frameworks like EU’s Unfair Commercial Practices Directive;
- Sector-specific ESG regulations:
- Batteries: a sweeping new “cradle-to-grave” regulation applying obligations to each stage of a battery’s life cycle to promote a circular supply chain (including, among others, supply chain due diligence, maximum carbon footprint, minimum recycled content, and extended producer responsibility);
- Deforestation: mandatory due diligence requirements on certain products associated with deforestation (including beef, cocoa, coffee, palm oil, soy, and wood products) and some downstream products; products that cannot be demonstrated to be “deforestation” free cannot be placed on the market;
- Product and packaging regulations: measures such as single-use plastic restrictions, eco-design standards, minimum recycled content and extended producer responsibility, repair and reuse requirements, safety standards for chemicals, and pesticides restrictions for plant protection;
- Carbon pricing under the EU’s Emissions Trading Scheme (ETS): a “cap and trade” system, requiring companies to purchase allowances for their carbon emissions (with a current price around €85 per tonne), including for previously-exempted sectors like aviation;
- EU’s Carbon Border Adjustment Mechanism (CBAM): imposes a charge on imports of certain industrial products (including iron, steel, cement, and aluminum) corresponding to their production carbon footprint, and imposes reporting and verification obligations on overseas producers;
- Sustainable transport:
- Sustainable Aviation Fuel (SAF)(use and taxation): standards and criteria for qualification as SAF, minimum SAF content requirements;
- Maritime transport: fuel standards;
- Road transport: emission standards for cars/vans and buses/trucks;
- Waste regulations: measures to enable efficient trade in waste intra-EU; waste exports conditioned on the ability of third country to manage waste in an environmentally sound manner; strengthened action against waste trafficking.
International law relating to ESG issues
Many ESG issues are the subject of international initiatives. New international rulemaking is swiftly adding to the well-established body of international law touching on ESG issues, in areas like climate change, biodiversity protection, waste shipment, plastics pollution, labor rights and standards, human rights, and more.
Importantly, domestic regulation is increasingly incorporating international rules as a way of benchmarking acceptable corporate ESG practice. For example, there is soft and hard regulation in some national jurisdictions to align business plans with the Paris Agreement’s temperature goals, and to follow standards developed at the International Labour Organization and in key international environmental treaties. International rules are also being used as benchmarks by regulators and national courts in assessing corporate ESG claims. They set integrity standards for carbon offsets as well, which are a key part of the pathway to net zero emissions.
In shaping their ESG policies, companies need to understand these developments at international level, and how they influence regulatory and enforcement trends, and best practices, at national level.
Our experience covers:
- International climate law: the body of rules developed under the United Nationals Framework on Climate Change and the Paris Agreement. Sets out states’ rights and obligations regarding mitigation of, and adaption to, climate change, financial and other means of support, and international oversight and compliance mechanisms.
- Carbon offsetting: both a key part of the net-zero toolbox and a potential source of legal and reputational risk; subject to rapidly moving domestic and international regulation, including under the Paris Agreement, as well as a complex set of private initiatives.
- The Carbon Offsetting Reduction Scheme for International Aviation (CORSIA): a treaty-based mechanism covering certain international aviation emissions; participating ICAO Member States must require their aircraft operators to offset a portion of the growth in their CO2 emissions on international flights.
- ILO rules: establishing internationally agreed minimum standards and rules for labor practices, setting a benchmark on issues such as forced labor, child labor, non-discrimination, collective bargaining, and occupational health and safety.
- Business and Human Rights: non-binding international instruments setting out accepted minimum standards for business operations, including the UN Guiding Principles, the ILO’s Tripartite Declaration, and the OECD Guidelines for Multinational Enterprises.
- New environmental and human/labor rights obligations in FTAs: a major trend in the international trade law space, countries like the EU and the U.S. are increasingly building binding environmental and human/labor rights obligations into their FTAs, in some cases with the option of binding dispute settlement and retaliation in the event of non-compliance. Litigation under FTAs is expected to increase.
- The Basel Convention: setting out international regulation on the cross-border movement of hazardous materials, ensuring waste is managed and disposed of in an environmentally sound manner.
Our Work – Representative Matters
- Global technology company on EU and international legal and reputational risks of ESG-related marketing claims.
- Global electronics company, conducting a comprehensive risk assessment and management analysis, including under: EU domestic regulations (reporting requirements, supply chain due diligence, circularity, e-waste, and plastics management) and international regulations (carbon offsets and implications of the Basel Convention).
- Global pharmaceutical company on an implementation plan to ensure compliance with EU ESG reporting requirements.
- Global food company on EU and international legal and reputational risks related to its public ESG communications.
- An international airline, advising on:
- The applicability to airline operators of plastics regulations across multiple domestic jurisdictions;
- Requirements and risks under CORSIA carbon credit eligibility rules, in light of rules developed under the Paris Agreement; and
- Requirements and risks under the revision of EU ETS for aviation.
- An international airline, conducting a comprehensive risk assessment and management analysis, including under: U.S. domestic regulations, EU domestic regulations (reporting requirements, supply chain due diligence), and ESG-related litigation risk.
- A consumer goods company on the implications of the Basel Convention on waste management practices.
Our Work – Thought Leadership
- Resource Package on the EU’s Suite of “Fit for 55” Proposals
- European Union a Step Closer to Adopting Expansive New Rules Covering Lifecycle of Electric Vehicle Batteries
- Expect New Lifecycle Management Duties For Battery Industry
- European Commission: Sweeping Rules for Corporate Sustainability Due Diligence
- On carbon offsetting:
- A Tale of Two Carbon Pricing Schemes for Aviation: the Interplay between the EU/UK ETS and CORSIA and podcast
- Team members have taught PhD-level courses on trade and sustainability and international environmental law.